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why do we have bubbles why do we have financial institutions that with 40 to 1 leveraged balance sheets we have them because the people who uh you know because because you couldn't short single-family home prices rising okay right that's why there was a bubble in single-family home prices and interestingly only when there was a mechanism to go short housing basically the abx index did the bubble finally burst and so if the whole country is only long on margin we're gonna have bubbles after bubbles okay um and systemic risk is created when we have institutions with and i'm not i don't mean to pick on lehman and i'm not i'm not short lehman and i'm not long lehman but uh we want businesses that can withstand the critique of of any investor right uh that's that should you know whether it's a bank or otherwise if you know if you're long and you own a stock you can go into barons you can get on the rooftop you can pump how great your company is and no one for a second looks at you askance but if the same person gets on cnbc not the same person or even you know david einhorn is mostly along as opposed to a short he gets on cnbc and he talks about why he thinks mdc home building company is a great company no one thinks twice but if he gets on he says you know look i have some concerns about lima's balance sheet i have some concerns about how they're marking their assets um this is something where the the new york times writes a scathing article about david einhorn doing this and i would think the media of all places the media which is the the force for you know digging up the dirt about what's going on in washington should be very interested and and short should be the best source for the media and frankly they should be if if i were i would have given a slightly different answer than bob steele if i were treasury secretary i would say instead of meeting with jim chanos twice a year i would meet with channels once a month uh or at least i would have an open door to the short selling community if you have concerns about companies the economy balance sheets etc and we want to hear about them and if it's even if it's just simply you know what here's an email box where you can send your submission we'll take it seriously to you know what the ones that are serious but is there not a substantive danger and a substantive distinction between advocating on the up and advocating on the short side take lehman brothers right you can quibble well i'm not equivalent that might be right you can argue with um the way they presented the information about their assets the way they're marking them and so on but you also run the risk of putting that company into serious financial crisis which which has all sorts of effects that that you just don't know what's going to end i mean bear stearns is a perfect example so isn't there a substantive distinction that is just more dangerous to the economy at large i'll only distinguish between different types of short selling and disclosure i think if someone spreads rumors that are false right a person should be prosecuted in order to make an investment gain that person should be prosecuted if a person goes on cnbc and says based on my analysis of the 10q on page 12 you know they said that we've got six and a half billion of cdos and before they said this was mortgage-backed securities what's the substantive difference i think that's that's totally acceptable if no legitimate business in my view will go out of business because someone spreads a false rumor about it i think that uh you know if lehman is so vulnerable to the criticisms of a short seller i think it has to think about whether it's it's capitalized correctly you know can you is there a room in the world for a 40 to 1 lever institution which is so confidence sensitive that a 38 year old short seller can get on cnbc and raise a few concerns and it goes out of business it's a dangerous game to play though especially especially especially when it comes to financially centered stocks where confidence is the coin of the realm here's what i would say what i would say is why do we have bubbles why do we have financial institutions that with forty to one levered balance sheets we have them because the people who uh you know because because you couldn't short single family home prices rising okay right that's why there was a bubble in single-family home prices and interestingly only when there was a mechanism to go short housing basically the abx index did the bubble finally burst and so if the whole country is only long on margin we're gonna have bubbles after bubbles okay um and systemic risk is created when we have institutions with and i'm not i don't need to pick on lehman and i'm not i'm not short lehman and i'm not long lehman but uh we want businesses that can withstand the critique of of any investor right uh that's that should you know whether it's a bank or otherwise so by the ackman plan what what are the other means of injecting the short seller ethos or vibe into the markets are there ways we can institutionalize it to create a corrective uh force on look at what happened to me you know i wrote a 66-page white paper it was reviewed by some of the best law firms in the city uh i released it in the most public way i possibly could i disclosed my position it's very important to disclose your position you can't claim to be independent and put out a piece of paper that's where you're not um and then i had to go withstand a six-month investigation by elliot spitzer in a several month investigation by the sec david einhorn criticized allied capital publicly in 2002 and in turn he was investigated by the sec um you know it it's okay you know i've got a thick skin but if if this is the regulatory response to someone criticizing a public company particularly an influential one i mean mbia largest guarantor of new york state and city bonds it was a very easy call for them to the treasurer and the call from the treasurer to spencer's office what you want is what you should be thinking about as an investor is what are the incentives of the person giving me the information and the incentives of a management team of a public company are in some sense stronger to promote their stock than the incentives of a short seller you know the short seller is short and management is long the short seller has a choice in which companies he shorts management doesn't have a choice in which company they're along right and i think that if anything you would look for bias on the part of management foreign
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